Using time-varying BVARs, we find a substantial decline in the shortrun
price elasticity of oil demand since the mid-1980s. This finding
helps explain why an oil production shortfall of the same magnitude
is associated with a stronger response of oil prices and more severe
macroeconomic consequences over time, while a similar oil price
increase is associated with smaller output effects. Oil supply shocks
also account for a smaller fraction of real oil price variability in
more recent periods, in contrast to oil demand shocks. The overall
effects of oil supply disruptions on the US economy have, however,
been modest.